Elliott Wave Rules and General Observations
Elliott Wave Rules and Guidelines
There are three main rules that most standard Elliott Wave analysts adhere to today:
- Elliott Wave (2) cannot retrace past the start of Elliott Wave (1)
- Elliott Wave (3) cannot be the shortest wave in a completed 5 wave sequence
- Elliott Wave (4) cannot retrace into Elliott Wave (1)
Although these are quoted as rules, Elliott himself (in his original writings) never referred to these as strict rules, he used phrases like should and rarely to describe them. As such, the label of Elliott wave rules was probably added in later years in an attempt to make the principle less ambiguous and more structured and exact.
The section above outlined the three main Elliott Wave rules that should be obeyed in all 5-wave sequences. Now we would like to look at some additional observations and general guidelines that can help in placing an Elliott Wave count on a chart.
Corrections and corrective waves do not have a set of rules associated with them, so these general observations focus on the ideal 5 wave pattern.
- Elliott Wave (3) is usually the strongest wave
- Elliott Wave (5) and Elliott Wave (1) are very often equal in price
- Elliott Wave – The rule of Alternation
- Elliott Wave (2) usually unfolds as a simple abc correction
- Once a 5-wave sequence is complete, the whole sequence is corrected
- The first leg off the move from a completed 5 wave sequence, often finds support/resistance at the prior minor Wave (4)
- Once a correction is complete, the main trend resumes
- Elliott Wave (4) can retrace into the area of Elliott Wave (1) (slightly)
Now we have finished the specific Elliott Wave rules and also some General Observations, you should be ready to apply these to some charts. But before you do, we suggest taking a look at the next section on how to trade Elliott Wave, especially as this outlines how Elliott Wave patterns unfold in today’s markets, and as such, how they are best traded.